August 21, 2018 / 12:25 PM / 8 months ago

UPDATE 2-Hungary's central bank keeps rates on hold, sticks to loose policy

(Adds central bank’s comments, updates forint)

* Bank kept base rate at 0.9 percent

* Overnight deposit rate also unchanged at -0.15 pct

* Inflation picked up but running around bank’s target

* First rate hike seen only in 2019 - poll

* Bank to release fresh inflation forecasts in Sept

By Krisztina Than

BUDAPEST, Aug 21 (Reuters) - Hungary’s central bank left all its interest rates unchanged at record lows on Tuesday, as expected, ignoring a rise in inflation and a broader market selloff on Turkey’s currency crisis.

The National Bank of Hungary, which has made a series of rate cuts and introduced unconventional policies in the past years, kept its dovish overall message in its post-meeting statement, while it reiterated that global market volatility justified a more cautious approach to policy.

“The (Monetary) Council will ensure the maintenance of loose monetary conditions, necessary to achieve the inflation target in a sustainable manner, by using the current set of monetary policy instruments,” the rate-setting body said.

The bank faced its first significant test from financial markets last month as global rates rose and emerging markets sold off.

That sell-off sent the forint to all-time lows past 330 versus the euro in early July. However, the bank stuck with its dovish stance and global sentiment improved.

Investors again sold off the forint and its regional peers in the past week, along with a plunge of Turkey’s lira.

On Tuesday, the forint slipped to around 323.90 to the euro by 1317 GMT after the bank’s comments, still well off the record low set in July. A weaker dollar helped Central Europe’s currencies.

Analysts said the Sept. 18 rate meeting could be more interesting, because the NBH will publish its latest inflation report and forecasts then.

The bank said that in September the Monetary Council will “decide on the amount of liquidity to be crowded out and will take this into account in setting the stock of central bank swap instruments.”

A Reuters poll last week forecast no change in either the Hungarian base rate or the overnight rate this year — even though the Czech and Romanian central banks have already been raising interest rates.

Some analysts expect a gradual rise in Hungarian rates from next year, around the time the European Central Bank is expected to start raising its own rates.

The bank said the ECB’s decisions could have a significant influence on its policy.

With inflation still running around its 3 percent target, the NBH wants to keep borrowing costs low for households and companies.

Annual inflation rose to a 5 1/2-year high of 3.4 percent in July, but was still within the tolerance range around the target. The bank targets 3 percent inflation, plus or minus one percentage point.

Some analysts have said it might start tightening policy first by withdrawing liquidity from the interbank market, via its swap tools, rather than by raising rates. (Reporting by Krisztina Than, editing by Larry King)

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